Big, Brand-name Company Takeovers Back in Style—What’s Old Is New Again

By Mitchell Clark, B.Comm. Published : July 21, 2011

There are so many companies that you don’t think about investing in, even though it’s likely that you use their products on a regular basis. One such company is The Clorox Company (NYSE/CLX), which is now in the sights of billionaire Carl Icahn. This financier is Clorox’s largest shareholder and he recently initiated a takeover offer for the consumer products company for $80.00 a share. He’s also asking the company’s management to shop itself to the marketplace for a higher bid.

We all know the brand name “Clorox” for its bleach, but what you might not know is that the company also owns other well-known brands like “Kingsford” charcoal, “Glad” garbage bags, “Brita” water containers, “Burt’s Bees” products, “Pine Sol” cleaner…and the list goes on.

Like most large-cap companies, Clorox really hasn’t done much on the stock market over the last 10 years except pay a solid dividend. The stock is currently trading around $75.00 a share with a yield of approximately 3.3%. In year 2000, Clorox’s dividend was $0.82 per share, but it was increased every year to its current level at around $2.10 per share.

If you pull up a long-term stock chart on the company, you’ll find that it was a huge wealth creator for shareholders. From 1995 to 2000, the stock accelerated from $15.00 a share (split adjusted) to over $60.00. That’s an impressive performance for any large-cap stock. At its current level of $75.00 per share, the stock is trading at its all-time high, and one could argue that the company’s share price performance and dividend payments have been very good.

Icahn sees the value in this business and this is why he is trying to buy it for about $11.0 billion. Or rather, he’s trying to get someone else to buy it for more money, thereby generating a nice capital gain for himself.

I think we’re going to see a lot more of these kinds of takeovers for the simple reason that there isn’t a lot of growth in the economy. Therefore, the only way for a big investor to generate any meaningful return on investment is to go out and purchase entire companies. This is what Warren Buffett does and the universe of good businesses that are available to be bought is actually quite small.

Individual investors can’t go out and purchase businesses whole, but they can buy shares in such public companies. I don’t think an equity portfolio should be without several names of well-established, dividend-paying companies. As I see large-caps outperforming over the coming quarters, my research in this sector highlights the impressive capital gains and income one can earn by owning the right large-cap companies.

Stocks are inherently volatile securities. They usually aren’t as prone to the same kind of price swings as commodities, but they have their moments. Institutional investors are going to keep migrating their investment dollars to large-cap, dividend-paying stocks, because they can’t get investment returns anywhere else. It might not be exciting, but it’s likely we’re going to hear a lot more about companies like Clorox over the coming quarters. What’s old is new again and there’s money to be made in these names.